Deloitte figures show mainland IPOs fall in Hong Kong as more foreign firms seek listings

City expected to maintain its leading position for the whole year, with approximately HK$200b raised by 115 listings

PUBLISHED : Monday, 26 September, 2016, 6:15pm
UPDATED : Monday, 26 September, 2016, 10:58pm

Fewer mainland companies listed on the Hong Kong stock exchange in the first nine months of the year, even as it kept its crown as the world’s largest market for initial public offerings (IPOs).

Analysts attributed the drop to an increase in foreign firms listing in the city, as they sought a staging post for contracts involved in the country’s One Belt, One Road economic initiatives.

But they shrugged off concerns that Hong Kong is losing its appeal to mainland fund raisers.

In the first three quarters, 29 of 71 new listings, or 41 per cent were from the mainland, according to Deloitte figures. They compare with 37 mainland IPOs, or 51 per cent, at the same stage last year.

The capital raised by the Chinese firms accounted for 89 per cent of the total funds, down only slightly from the 92 per cent a year back, although the mega Postal Savings Bank of China, the world’s largest IPO this year, which is seeking up to HK$62.7 billion, was included, inflating the overall result.

“More foreign firms offered shares in Hong Kong this year, some of which are construction firms seeking more exposure in the Belt and Road initiatives,” said Edward Au, co-leader of Deloitte’s national public offering group.

More foreign firms offered shares in Hong Kong this year, some of which are construction firms seeking more exposure in the Belt and Road initiatives
Edward Au, co-leader, Deloitte’s national public offering group

Hong Kong maintained its position as the world’s largest IPO market in terms of total fund raised and number of IPOs in the first nine months, mainly thanks to big offerings of mainland financial institutions, according to Deloitte. But total fund raised fell 13 per cent year on year to HK$136.4 billion, with IPO numbers down from 72 to 71.

The firm now expects Hong Kong to maintain the leading position for the whole year, with approximately HK$200 billion fund raised by 115 listings, given the suspended rate rise from the US and stabilised growth of China economy could help improve the sentiment.

Five listings from Singapore, Malaysia and South Korea, including Singapore’s Chuan Holdings Limited, raised a combined HK$9.2 billion, up from HK$1.4 billion raised by three foreign firms last year.

There are still another 15 foreign firms in the IPO pipeline, according to Deloitte research.

“The [results] are in line with Hong Kong’s effort to strengthen its position as Asia’s financial centre,” Au said. “The government is also encouraging overseas companies to build corporate treasury centres here.”

Deloitte concludes the city maintains its advantage for mainland companies seeking public offerings, although several H-share companies have announced plans to delist form the Hong Kong exchange this year, including Dalian Wanda Commercial Properties.

Hong Kong still leads world’s IPO market in first nine months

“We don’t think delisting is becoming a general trend,” Au said.

It is currently taking around four years to get to market in the mainland, with more than 800 candidates stacked up in the IPO queue.

Beijing delayed the implementation of a registration-based IPO system on the Shanghai and Shenzhen stock exchanges earlier this year to shore up investor confidence, and Au said that’s unlikely to be rolled out any time soon.

“The cost for Hong Kong listed companies going back to the A-share market is too high,” Au added.

Proposals just published by the China Securities Regulatory Commission will now allow companies registered in one of 592 impoverished regions nationwide to skip the list of groups currently waiting for a mainland IPO.

“Acceleration of mainland IPOs won’t necessarily threaten Hong Kong,” said Dick Kay, a partner at Deloitte. “Firms in impoverished areas may not suit the city.”

Kay said Hong Kong also offers advantages to Chinese firms planning to “go out”, or expand abroad.